After dodging the huge tariffs on exports of U.S. LPG and ethane to China — at least until August 12 — a new wrinkle has emerged. Enterprise Products Partners said in a filing May 29 that the U.S. Bureau of Industry and Security (BIS) has flagged its exports of butane and ethane to China as a security risk; specifically, that they pose an “unacceptable risk of use in or diversion to a military end use.” Details about the licenses and how they will apply are limited at this point, but it appears they will be required for these exports to continue. In today’s RBN blog, we examine the potential impact on the ethane and butane markets.
In its 8-K filing to the Securities and Exchange Commission (SEC), Enterprise indicated that it is unable to determine, as yet, whether it will be able to acquire such licenses for its exports in a reasonable amount of time, if at all. (An 8-K filing is a mandatory disclosure that public companies must file with the SEC to inform their shareholders and the public about major, unscheduled material events or corporate changes.) There has been no direct word from the other ethane exporter, Energy Transfer, nor exporters of butane, including Targa Resources and Phillips 66 (P66). However, it is reasonable to assume that they received similar letters from the BIS regarding their exports. The location of LPG (propane and butane) and ethane export terminals and the products they export are shown in Figure 1 below. (For more on U.S. LPG and ethane exports, see Hot To Go!)
Figure 1. North American NGL Marine Terminals. Source: RBN
The BIS decision has the potential to ruin the U.S. ethane market and disrupt global flows. The U.S. is the sole source of long-distance ethane exports to China. In the short term, there are no markets that could replace China’s ethane imports nor are there markets that can take most of the U.S. ethane previously destined for China. The impact on the butane market is less severe, as only 5% of U.S. butane exports head to China and the smaller volume can easily be diverted to other countries. For example, butane that would typically head to China from the U.S. could instead be sent to India, and the volume destined for India from, say, the Middle East would then go to China.
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